Versatile Tool for Planning Ahead
Trusts are used today to pass property to heirs or charitable organizations, manage property, avoid probate and save taxes. There seems to be a specific trust to fulfill almost any plan for asset management or distribution so long as it does not conflict with state law or public policy.
during life are private. They do not become a matter of public
record as do probated wills, and their terms are more difficult to challenge
than the terms of a will. Properly drawn, your trust can also protect
your beneficiaries from the attacks of creditors.
Irrevocable trusts are more rigid and usually cannot be changed, but they offer favorable tax benefits. Think of the trust as a contract (more than just a Roman “fiducia”) between you and the trustee.
Because trusts are specifically designed, carefully thought-out, less subject to challenge, less expensive and more quickly distributed than probated property, they may best serve your planning for tomorrow.
Three Trusts Worth a Closer Look
A Charitable Lead Trust Offers Good News for Bad Markets
As it turns out, there is a way to take control of a bad-market situation and use it to your advantage. Recent declines in equity portfolio values actually may present some excellent opportunities for tactical estate and gift planning.
Consider the charitable lead trust (CLT). A donor transfers cash or assets, which are appreciating in value, into a trust with the intention of supporting the American Red Cross and/or other charitable organizations and then returning the asset to the family. It’s a tool that helps preserve family wealth and control social capital.
The lead trust works well in a low-interest environment because the value of the remainder interest to heirs for gift tax purposes is decreased, allowing you to pass more to them for the same cost. The donor has a choice about using either a fixed dollar contribution (CLAT) or a fixed percentage contribution (CLUT) in order to meet the requirements for a qualified lead trust.
Is there any risk to creating a charitable lead annuity trust? If the CLT investments earn less than the government’s applicable federal midterm rate (the interest rate used by the IRS to value the remainder interest in a gift), then the trust will produce a remainder significantly less than what was originally contributed. If the trust manager takes a long-term view and maintains a tax-efficiently managed portfolio, though, the subsequent growth passes tax-free to heirs.
Currently, with the government’s low interest rate used in calculating the gift value and the stock market decline, a charitable lead annuity trust is an excellent planning tool. If these trusts are created far enough ahead of time or with a high enough payout, inheritances may pass with little or no tax cost. And since the assets placed in the trust are most likely in a temporary decline because of market fluctuations or the trustee will sell and reinvest the assets to make a stronger portfolio, the family inherits a solid portfolio with the capacity to grow significantly. Contact your advisor or Marlo Saindon at the Red Cross of Central Maryland for more information.
For more information about this and other charitable gift planning options, contact Marlo Saindon at 410-624-2034 or email her at [email protected]
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